Letter from Washington: Bailouts, Enterprise Test and Unnecessary Statistics

by Eli Lehrer on September 20, 2011

The Wall Street Journal carried an op-ed last week arguing that many key provisions of President Obama’s jobs bill are intended as a bailout for “blue states” (defined as Democratic states with heavy union presences) and that others might make things worse for the same states. The two authors, Paul Peterson and Daniel Nadler, muster a lot of impressive evidence to support their case and suggest that we’re better off simply allowing states to go bankrupt if they are poorly managed.  I agree. But, certainly, the idea of “blue state bailouts” has a fair amount of support in the Democratic Party and some insurance proposals I’ve written about in the past are even more blatant versions of a blue state bailout.

There’s one meaningful problem with the whole line of argument. States, contrary to what Peterson and Nadler write, can’t go bankrupt at all. Bankruptcy is a formal process with a clear legal outcome that leads to a partial or total discharge of debts. It’s available only to individuals and certain classes of organizations. Local governments can go bankrupt but state governments, banks, and insurers can’t. (Banks and insurers “become insolvent” and have government-run or mandated insurers pay some or all what they owe.) States, if they can’t “repudiate” their debts. But state debt repudiation isn’t even formal process like bank and insurer insolvency either; it’s more of a legislature saying “We won’t pay and, because we’re the government, we don’t have to! So there!” A lot of state constitutions require states to pay their debts so, in many cases, an effort to repudiate debts would cause a state constitutional crisis or could lead to things like courts ordering tax increases or asset sales. In short, state bankruptcy doesn’t appear to really be possible. So, while Peterson and Nadler make a very good point, I tend to think that the outcome of their solution could be a lot thornier than they imply.

All that said, the fundamental idea that the President wants to bail out the states most likely to support him certainly does have some explanatory power. But, of course, not every plan that Obama might like even bothers to disguise its true nature. If the Obama jobs plan–which, at least on its surface, offers at least something for just about everyone—can be considered a disguised blue state bailout (even if it does some things hurtful to the same states), then the so-called Earthquake Insurance Affordability Act (S. 637) is an blatant version of the same thing. Although written in broad language, the bill’s eligibility requirements make it impossible for any state besides California (one of the most Democratic states and one of the most heavily unionized states) to benefit from it.  It’s the mother of all proposed blue state bailouts and not even a mixed blessing like the Obama jobs plan.


I’ve long been an advocate of looking at McDonalds’ service levels as an informal barometer of the local economy: the worse service at McDonald’s is, the better the overall local economy is. (Basically, if there are jobs elsewhere, skilled/experienced workers will leave McDonalds’ and McDonalds’ will be staffed by teenagers and others with little experience in the workforce.) But McDonald’s can only go so far although a lot of people who go on to hire education may take a teenage job at McDonalds’ a fair number of people—most college graduates–probably wouldn’t take an hourly job there under any circumstances.  Thus, McDonald’s may not tell you much about the white-collar job market.

For this, based on my own observations (and, like the McDonald’s test, this is entirely unscientific) I’d propose another test: the Enterprise Rental Car Age Test. Enterprise, the country’s largest car rental company, year-in and year-out tends to hire more new college graduates than any other company—nearly all employees have four year degrees.

They look closely at GPA and “smarts” but don’t otherwise require much experience and train from scratch. Because they have so many tiny locations (many tucked away in car dealerships), furthermore, people just a year or two out of college can become Enterprise location managers responsible for a vehicle fleet worth more than $1 million and regional managers with real profit responsibility by their late 20s. All that said, the company works people very hard, sets ambitious profit targets, and has some of the lowest management trainee salaries around (low 30s.) While there’s a clear upward career track at Enterprise, it’s apparently very competitive and a lot of people use the company to gain some management experience and then go somewhere else (Which the company welcomes, as I understand it).

Thus, it stands to reason that, if the overall white collar economy is good, Enterprise is going to be staffed almost entirely by people in their early 20s who, mostly, move on to other jobs after cutting their management teeth. If its bad, however, a lot of the people waiting on you at the Enterprise counter are going to be in their late 20s, early 30s, or older. Anecdotally, at least, this bears out: in Chicago, Illinois—with a slumping economy—I’ve seen people with some grey hair behind enterprise counters. Same in slumping South Florida. In doing-better Austin, Texas and Fairfax County, Virginia, however, I’d guess I haven’t run into anyone over 25.  A new barometer? Maybe.

Over at FrumForum, I write about how I’m grateful that the United States Government doesn’t keep any official statistics on what religions people follow. Doing so would cause lots of dispute and accomplish very little good. It leads me to wonder: are there other types of aggregate data that the government keeps but just shouldn’t? Certainly, the “big six” statistical bureaus (although there are actually more than six agencies that keep statistics) track a whole lot of things that seem pretty trivial: the crops most grown in certain states, the number of people who say they were victims of burglary, how many people work as actuaries. But, with the peculiar exception of religion, I’d say that this is mostly a good thing:  aggregate data doesn’t invade anyone’s privacy and it reveals a lot of interesting, enlightening things. So, for once at least, I can think of something that the government should keep on doing.

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